Europe’s economy and changes at J.C. Penney may give the weather blame game competition when retailers release their upcoming sales and earnings reports.
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Woman shopping for clothes
Winter never came this year and as a result apparel retailers reported generally ugly sales and gross margin numbers for the fourth quarter. Remember those margins from the teen retailers that declined as much as 1,000 basis points? Promotions ruled as retailers tried in vain to move cold-weather-related products. Weather was an easy “out” for retailers.
Fast forward to recent Spring results. This time the weather was something to celebrate. Last month, same-store sales results blew away expectations. Lower heating bills have put a few extra dollars into consumer wallets. And the early start to Spring has inspired shoppers to rush into stores in search of brightly colored jeans and tank tops. Luckily for retailers, color is “in” this Spring. Spring Fever has given investors hope even when it comes to the longest turnaround stories (the Gap). Only time will tell if sales were being pulled forward or if the consumer has staying power.
Just as we were getting a bit euphoric about recent results, Deckers Outdoor and Crocs gave us a reality check last week. Turns out while investors may be quick to forget, retailers are still holding a grudge. Both companies suggested the channel fears winter is a thing of the past. As a result, orders for next Fall/Winter are under pressure. Not only is there leftover product from last year, but there is also caution about taking a stance on wintery wears this year. Deckers cited the weather no less than 30 times on their conference call.
And let’s not leave out a disappointing announcement from Big Lots . First-quarter same-store sales will miss expectations. And that is even with a lift from the weather bump in lawn and garden.
While retailers are adjusting to the fickleness of Mother Nature, the tighter inventories may actually be good news in the long run. Tight inventories going into any season create scarcity of product and result in limited markdowns. That was pretty much the theme post-recession as some retailers reported they did not take big enough bets on products. Fear can actually be a healthy thing for profitability.
If recent weather gyrations don’t give us enough concern, don’t forget Europe. The U.K. is now officially in recession and Southern Europe speaks for itself.
Deckers, Crocs, Starbucks, and to a lesser extent, VF Corp., whose brands include North Face, Wrangler and Nautica, raised a few red flags. While Deckers is a believer that the Queen’s Jubilee and the Olympics may come to the retail rescue, I wouldn’t bet on it.
It will be interesting times for U.S. retailers placing new bets on the region (Abercrombie & Fitch , Coach, Lululemon Athletica, Limited, Gap, TJX Cos.). The good news is a few of these retailers should persevere as a result of voids in the market. (Specifically, TJX, Limited, and Lululemon.)
As we approach same-store sales results on Thursday, let’s throw one last wrench in the mix for retailers not in search of growth in Europe. Yes, that is J.C. Penney . While CEO Ron Johnson’s new strategy for J.C. Penney may or may not be a success, it has implications for vendors and competitors. Jones Group is losing distribution while J.C. Penney focuses on 80 to 100 stores-within-a-store and new brands. Also, more announcements on who is “in or out” at J.C. Penney are on the way. As for the competition (Macy’s , Target , and Kohl’s ), it may take more than pricing to get customers back into the stores.
Seems retailers have more to worry about than Mother Nature this earnings season.
DISCLOSURE: Stacey Widlitz owns shares of Limited Brands.
Stacey Widlitz is the President of SW Retail Advisors Inc. She has worked at UBS, SG Cowen, Fulcrum Partners and in 2005 was one of three analysts to launch the Research Department at Pali Capital, where she covered Retail and Home Video for five years. Follow Stacey Widlitz on Twitter @StaceyRetail.
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